Changes in the financing of health care may have direct implications for health disparities by having a differential impact on providers that serve minority and underserved communities. This may be especially true in a prospective payment system (PPS), involving a bundled payment to providers for a relatively broad set of services, that may not fully account for the costs of treating certain populations. In response to the change in financial incentives, providers may alter clinical practices in ways that could reduce or widen health disparities, leading to improved or worsened health outcomes. The proposed study uses the Medicare end-stage renal disease (ESRD) payment reform as a natural experiment to study these issues. On 1/1/ 2011, the Medicare ESRD program will transition from fee-for-service payment to a broader PPS for many renal dialysis services. The study focuses on implications for Blacks, whose current Medicare ESRD costs for services being added to the PPS are approximately 21% higher compared to other race groups, and rural patients, whose dialysis facilities are likely to be smaller with higher fixed costs per treatment. Analyses will include Black and rural patients in low income areas, where facilities are likely to have a payer mix that includes more patients with Medicaid and fewer patients with private insurance, limiting opportunities to shift costs. The goal is to evaluate the ESRD payment reform and subsequent changes in facility practices as factors that may influence health disparities. This will be accomplished by examining the relative changes in outcomes and specific clinical processes of care for Black and rural dialysis patients, and relating processes of care to outcomes for these groups. Study aims are: 1) Examine the effects of ESRD payment reform on clinical outcomes for Black patients and patients in rural areas, compared to other patients; 2) Examine changes in access to care and specific clinical processes of care that may be incentivized by the ESRD payment reform, for Black patients and patients in rural areas, compared to other patients; and 3) Evaluate the relationship of changes in specific clinical processes of care that occur in response to the ESRD payment reform to changes in clinical outcomes for Black patients and patients in rural areas. As potential mediating factors, the study will assess the role of the facility's racial mix, facility/organization size and the facility's payer mix. Data for the over 330,000 Medicare dialysis patients and 5,000 dialysis facilities in the Medicare ESRD program will be supplemented by Dialysis Outcomes and Practice Patterns Study data on approximately 4,500 hemodialysis patients in 140 facilities. Findings from this study will have broad public policy implications by providing insights into the effects of prospective payment on the care and outcomes of minority and underserved populations who are more costly to treat in ways not accounted for by the payment system. Lessons learned from provider practice responses to payment reform can be applied to the financing of care for other high-cost chronic conditions and will highlight opportunities to alter provider behavior as a way to reduce health disparities and improving outcomes. PUBLIC HEALTH RELEVANCE: Medicare end-stage renal disease (ESRD) program will transition from fee-for-service payment to a broader prospective payment system (PPS) for many renal dialysis services on January 1, 2011. The current costs to Medicare for the services being added to the ESRD PPS, which totaled $3.1 billion in 2007, are approximately 21% higher for Blacks compared to other race groups, but much of these higher costs of ESRD care for Blacks are not fully accounted for in the new payment system. This study, which proposes a timely evaluation of ESRD payment reform and subsequent changes in dialysis facility practices as factors that may have direct effects on health disparities, will provide insights into the effects of prospective payment and provider practices on the care and outcomes of minority and underserved populations who are more costly to treat in ways not accounted for by the payment system.